The Luxottica-Essilor Merger is Looking Rather Strained
In January 2017, the eyewear company Luxottica announced it would acquire Essilor, a large French company that produces ophthalmic lenses and other equipment, for $53 billion. The two companies were confident that they could merge without much trouble and that antitrust regulators would not be concerned. But their claims of a trouble-free acquisition look increasingly shaky.
Last month the European Commission announced an in-depth review of the merger because it was concerned about the merger's impact on competition. And here in the United States, the Federal Trade Commission has quietly reviewed the merger for some time, yet failed to approve it. This is a likely sign that the FTC has grave concerns about the deal, even if it is not publicly voicing them.
The FTC is right to carefully review this merger. Luxottica and Essilor are dominant players in the eyewear market, which is otherwise quite fragmented. Luxottica has 48% of the global sunglasses market share, while Essilor has 8%. And regarding lenses, Luxottica has 32% of the global market share and Essilor has 19%. Luxottica is by far the largest company in eyewear, and around a billion people wear Essilor's lenses. Additionally, the prices of glasses and lenses have been rapidly increasing, making them unaffordable for many Americans. The evidence from past mergers is quite clear: when huge companies merge, the prices of their products nearly always go up, and savings are rarely passed along to consumers.
If the two companies merge, the combined company would be a behemoth with enormous power over every step of manufacturing and selling eyewear. Additionally, Essilor performs about 75% of the world's research; if Luxottica is allowed to acquire the company, that research will be diminished and possibly even ended. The two companies currently compete against each other and such competition is likely to expand in the future, but the merger would end it.
This proposed deal is a vertical merger - a merger between two companies that operate at separate stages for the production process for a specific finished product. Recently the Department of Justice filed a lawsuit to block the proposed merger of AT&T and Time Warner, another vertical merger. AT&T spent most of 2017 confident that DOJ would approve the deal because it is a vertical merger that does eliminate a competitor from the market. They were wrong, and this lawsuit could be a sign that the Trump administration and other antitrust authorities are rethinking their approach and taking a harder look at vertical mergers.
The Luxottica-Essilor merger has been approved by several countries, but the FTC has continued to examine the merger, and has not issued any statements for quite some time. Since the review has dragged on for some time, it probably indicates that the FTC is thinking about the merger and sees potential problems with it.
We hope the FTC will continue its review of Luxottica's attempt to acquire Essilor, see that the deal will harm competition and consumers and increase prices, and file suit to block the merger on those grounds.